6. Which one of the following is NOT a real option? a. The option to expand prod
ID: 2727513 • Letter: 6
Question
6. Which one of the following is NOT a real option? a. The option to expand production if the product is successful. b. The option to buy shares of stock if its price is expected to increase. c. The option to expand into a new geographic region. d. The option to abandon a project if cash flows turn out to be lower than expected. e. The option to switch the type of fuel used in an industrial furnace to lower the cost of production. 6. Which one of the following is NOT a real option? a. The option to expand production if the product is successful. b. The option to buy shares of stock if its price is expected to increase. c. The option to expand into a new geographic region. d. The option to abandon a project if cash flows turn out to be lower than expected. e. The option to switch the type of fuel used in an industrial furnace to lower the cost of production. 6. Which one of the following is NOT a real option? a. The option to expand production if the product is successful. b. The option to buy shares of stock if its price is expected to increase. c. The option to expand into a new geographic region. d. The option to abandon a project if cash flows turn out to be lower than expected. e. The option to switch the type of fuel used in an industrial furnace to lower the cost of production. 6. Which one of the following is NOT a real option? a. The option to expand production if the product is successful. b. The option to buy shares of stock if its price is expected to increase. c. The option to expand into a new geographic region. d. The option to abandon a project if cash flows turn out to be lower than expected. e. The option to switch the type of fuel used in an industrial furnace to lower the cost of production.Explanation / Answer
The correct answer is option (b). The option to buy shares of stock if its price is expected to increase.
The Real option is defined as the available choice required for a good business opporturnity which helps in expansion of work in the market. It involves opporturnity in order to increase business options which includes capital techniques. It creates valuation of investments to be done. The real option includes the expansion of business location to increase business opporturnities. It provides a stand by option whereby, in case of downfall in business there could be abandon of the business. There could be easy flexibility to increase or decrease the expenditure in business.
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